3. 3
Blockchain under pressure
• Transaction fees high and
volatile.
• ~€15 on 12th November
• Confirmation times
unpredictable and long
• Paying for coffee on the
blockchain is no longer
possible
Credit ibtimes.co.uk
4. 4
• 1MB blocksize.
• 10 minute average block confirmation time
• Large statistical variations in block confirmation time
• Full copy of blockchain required by each node.
• Transactions broadcast to all nodes.
• Permissionless, consensus driven.
• Global consensus required for upgrades. Evolution is slow.
Technical limitations of Bitcoin
Credit globalpmsystems.com
5. 5
In 2025 miner rewards reduced to
3BTC per block and transaction fees
become the incentive.
Without competition between
transactions for the next block the
fees won’t be high enough to sustain
the miner network.
A secure network requires high fees.
Blockchain requires
constraints for security
6. 6
• Time critical trades and payments are difficult
(and stressful!)
• Can’t be used for small payments. 1% fee to
send €300. 10% fee for €30.
• Cheaper and faster to transact in custodial
off-chain systems (e.g. exchanges and
wallets). Puts funds at risk.
Effects on users
8. 8
Lightning in a nutshell (More later!)
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• Layer-2 protocol (ie. Operates
outside the blockchain)
• A network is made up of payment
channels. No trust needed.
• Each channel is funded by a
confirmed bitcoin transaction.
• Payments are made by agreeing
new balances through the
exchange of crypto messages
outside the blockchain.
• Payments can be routed through
the network by paying fees to
intermediaries.
9. 9
What’s so good about Lightning Network?
• Lightning-fast Payments. Transactions complete within milliseconds. No blockchain needed to complete
a payment transaction.
• Secure. Backed by confirmed blockchain funding transactions. Enforced by smart-contracts.
• Trustless. Protocol does not require trust between parties. Everyone is incentivised to play fair and
punished for foul play. No trusted custodians required.
• Scale. Millions of transactions per second. (Visa network max is 24K txn/sec)
• Low Cost, lightweight hardware. No Proof of Work mining or specialised hardware required for
payments. Standard x86 platforms can be used. Potential for deployment on mobile phone (in theory).
• Low fees. Low risks and costs allow for low fees. Allows instant micropayments.
• Cross Blockchains. Cross-chain atomic swaps can occur off-chain instantly with heterogeneous
blockchain consensus rules. Eg. Between bitcoin and litecoin.
11. 11
How does it work? Some key concepts …
• Unconfirmed transactions.
Transactions can be constructed and
signed but not broadcast to the
blockchain.
• Double-spend protection. Can build
many transactions but only one will
ever be confirmed.
• Bitcoin script language. Build
intelligent smart contracts.
# To you with revocation key
OP_DUP OP_HASH160 <RIPEMD160(SHA256(revocationkey))> OP_EQUAL
OP_IF
OP_CHECKSIG
OP_ELSE
<remotekey> OP_SWAP OP_SIZE 32 OP_EQUAL
OP_NOTIF
# To me via HTLC-timeout transaction (timelocked).
OP_DROP 2 OP_SWAP <localkey> 2 OP_CHECKMULTISIG
OP_ELSE
# To you with preimage.
OP_HASH160 <RIPEMD160(payment_hash)> OP_EQUALVERIFY
OP_CHECKSIG
OP_ENDIF
OP_ENDIF
OP_IF
# Penalty transaction
<revocationkey>
OP_ELSE
`to_self_delay`
OP_CSV
OP_DROP
<local_delayedkey>
OP_ENDIF
OP_CHECKSIG
12. 12
How does it work? Some key concepts …
• Multi-signature addresses. Both keys
required to unlock.
• Timelocks. Some outputs (i.e. coins)
can only be spent after a time period.
• Hash values and secrets. Some
outputs are hash locked and require
the secret.
Funding: $10 (both sign)
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Refund Bob: $5 after 1 week
Refund Alice: $5 immediately
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…Refund Alice: $5 after 1 week
15. 15
• Micro-payments, video content on demand
• Micro-payments, pay as you go mobile phones
• Payments processor (merchants and consumers)
• B2B payments
• Non-custodial exchange
• Inter-coin atomic swaps
Example Use Cases
16. 16
A payment from Bitcoin to Litecoin
Bob
Alice
Carol
$3 worth of BTC
+ fee $3 worth of LTC
Enforced on Bitcoin blockchain Enforced on Litecoin blockchain
Bob acts as exchange
17. 17
Lightning Network draft RFC
• Specifications draft under construction
https://github.com/lightningnetwork/lightning-rfc
• Currently under specification freeze as open source
implementations are completed.
• Main contributors are from 3 companies building
open source implementations.
18. 18
• Lightning Labs building Lightning Network Daemon (LND)
Written in Go
https://github.com/lightningnetwork/lnd
• Blockstream building c-lightning
Written in C
https://github.com/ElementsProject/lightning
• ACINQ building Eclair
Written in Scala
https://github.com/ACINQ/eclair
The Leading Projects